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Market update 22.02.06
Good morning, everyone.
In the last several posts, we discussed reasons to be short-term cautious on this market other than the few areas that are working: oil & agriculture. We also discussed that at some point, a rotation into tech and gold could occur.
With this week’s data, we have signs to start being selectively bullish on tech and gold mining leaders. Let’s take a look.
A lot of tech companies reported earnings this week and we saw extremely wide reactions from the market:
FB, PYPL, DT, SPOT: -26%, -25%, -18%, and -17% respectively.
GOOGL, PINS, AMZN, SNAP: +8%, +11%, +14%, and +59% respectively.
Meta (FB) erased $230B from its market cap in a single day - the largest ever for a US publicly traded company.
Despite the magnitude of earnings surprises in both directions, QQQ finished the week up 2%. Here’s how the tech leadership board looks now:
Leadership continues to come from big tech (GOOGL, AAPL) and cybersecurity (PANW, FTNT). The charts for these stocks look fantastic.
GOOGL Weekly. I mentioned Alphabet in my last post as having a great long-term monthly chart. It’s also the only stock that I dedicated an entire blog post for (Jul 29). After this week’s strong earnings report, GOOGL shot up to its former highs and is now forming a nice long setup:
GOOGL:QQQ Monthly. Alphabet is also coming out of a massive 15-year base relative to the Nasdaq-100.
FTNT Weekly. Fortinet was up 6% on Friday after earnings were reported at the close on Thursday. It finished the week up over 11%. The weekly chart now shows a false breakdown within a strong uptrend. This is very bullish.
As mentioned in last week’s post, the AAII sentiment survey hit an extreme net bearish level. With the drawdown in small-cap growth (ARKK) over the past 12 months, and recent declines in larger stocks (NFLX, FB), many claim we’re in the midst of a dot-com style bust.
This sentiment combined with the false breakdowns in leading tech names can produce a beautiful rally from here.
I’ve included gold’s quarterly chart in several blog posts now - showing how gold is coiled above a 10yr base. Today, let’s look at some new charts.
GDX Leaders, Monthly. This is a custom, equal-weight index of 6 gold miners that have shown relative strength in the past year. After a roughly 8-fold gain from 2016-2020, this index has been coiling. We want to keep watch for a breakout, either way.
Things look very constructive on a shorter, weekly timeframe in select miners.
KL Weekly. False breakdown in the 6th largest component of GDX, with a market cap of $10B.
RUP.V Weekly. Long setup forming in the 2nd largest gold miner on the venture exchange, with a $1B market cap.
USDX Weekly. The US Dollar Index is showing a false breakout. It was strong throughout last year while gold has been weak - more on this in the next section.
At the start of last year, commercial hedgers were very bullish USDX, neutral GLD, and very bearish bonds & foreign currencies. The result since then?
USDX is up 6%
GLD, EUR, TLT fell 5%, 6%, and 10% respectively
Also, growth vs. value (VUG:VTV) fell 9% thanks to weak bonds.
How are the hedgers positioned now?
It’s the complete opposite: Bullish bonds, precious metals & foreign currencies. Bearish USDX.
There is some evidence to start being bullish on select tech and gold miners:
Charts: long setups / false breakdowns in the leaders
Sentiment: AAII hit an extreme level of bearishness recently
Commercial positioning: bullish bonds & precious metals
I should note that much of tech and gold mining are still some of the weakest parts of the market, and so I will need to see further evidence before increasing my allocation to these areas.
Carrying a mix of current sector leaders (oil, agriculture), starter positions in select tech & gold mining stocks, and cash seems appropriate until more evidence comes in.
As always, you can find my work in real-time here: @alphacharts. Thanks for reading.
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.